What role can New Zealand play with “global Britain”?
If negotiations beginning this week are successful, New Zealand’s economic relationship with the United Kingdom could be returned to something more open and dynamic, if not completely like things were in a dimly remembered past. The UK is not set to become our largest market: while are keen to see better access for food and agriculture products, among others, Chinese consumption of our dairy products and meat cannot be so easily replaced. And in the other direction, although we might see some reductions in the cost of vehicles from the UK, for example, New Zealand’s attractiveness as a market for British exporters is also limited by our small size and relative openness. But this is a negotiation that is more than the sum of its parts: the FTA with New Zealand is an important bellwether of the UK’s readiness to assume the much-talked-about role of global trade champion in the post-Brexit environment.
But this is a negotiation that is more than the sum of its parts: the FTA with New Zealand is an important bellwether of the UK’s readiness to assume the much-talked-about role of global trade champion in the post-Brexit environment.
What’s trade got to do with it ?
The FTA is getting underway in a positive atmosphere. Both governments have been effusive about the opportunity in an increasingly complex and often protectionist world to demonstrate the value of trade and openness. That in itself is welcome but as we know with trade agreements the devil is always in the detail.
A seminar held in Auckland last week by the British NZ Trade Association fielded speakers pointing to potential value to be gained in medical technologies and devices, digital goods and services, food and agriculture (where it was politely but firmly said the UK needed to walk the talk about free trade) , the creative sector, fintech and investment into New Zealand. This mirrors the findings of the NZIBF study two years ago – “Old Friends, New Opportunities” – which points to a range of possibilities on both sides.
Mitigating against a strong outcome is the limited impact the FTA will have on UK GDP. This rather narrow assessment tends to overlook the dynamic gains of FTAs beyond the value of tariff reductions and market access openings for specific products. Greater commercial attention will inevitably be focused on the relationship, including the potential to develop new strategic alliances to sell into third markets in Asia as well as new, innovative business models, leveraging the time differences and strengths in services or digital trade to supply customers around the world. These dynamic gains will hopefully serve to maintain British interest in an ambitious, high quality and comprehensive agreement.
Let’s do this !
New Zealand has faced a similar conundrum with other partners. In the case of China, it was the big idea of China’s opening to the world which secured the favourable outcome. In the case of the United States the big idea of TPP was not enough to convince Congress to move ahead with the deal before it was trumped. In the case of India, a lack of big idea has meant the negotiation never got off of the ground.
The big idea in the NZ/UK FTA is one our British cousins have had themselves. To compensate for the departure from the EU, “global Britain” would see the UK assume a new mantle of global trade leadership. Even before Brexit has been completely secured, the UK Government has followed through and now has a very full dance card – not just negotiating with New Zealand, but also the European Union, the United States, Japan and Australia. It says it is interested in joining CPTPP and is taking a close look at the new Digital Economy Partnership Agreement (DEPA). And what about the fledgling New Zealand-led Agreement on Climate Change, Trade and Sustainability (ACCTS) as means to burnish the UK’s environmental credentials?
It is clear that New Zealand can open up to the UK a wider world of trade networks and ground-breaking agreements. On the other hand, we are now in a long queue where others are likely to set the pace. Without a definitive agreement on the post Brexit relationship with the EU, still the UK’s largest market, it will be difficult for the UK to be precise about the nature of future domestic regulatory settings. The US will inevitably want to force on them some unpalatable adjustments beyond headline-catching things like chlorinated chicken. Both these could serve as a brake to making the fast progress that politicians always promise but seldom, if ever, deliver.
The world certainly needs more trade champions, especially in the midst of a global pandemic, but those champions need to embrace openness to the greatest possible extent. The NZ/UK FTA is a negotiation full of good intention, with the potential to open up some new areas of two-way trade, investment and economic co-operation. As ever though, negotiators on both sides have their work cut out for them.
This post was prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum.